I gave a
little overview on recent developments concerning the flat-rate
copyright levy model
on a panel at
Transmediale at the beginning of February, and had wanted to write
this up for this list ever-since. Two weeks ago there was another
public discussion here in Berlin with people from the music industry,
a collecting society and science where the flat-rate was a central
issue. I took this as an opportunity to finally write up the
following report. The conclusion, without any flattery: things are
looking decidedly good for the flat-rate

I‘ll
start with the discussion in Berlin, recap some developments on
alternatives to a flat-rate that industry is pursuing and then look
at several countries from which I received news on the trend to B
Flat (sorry, couldn‘t resist ,-). France deserves the pole
position, but I keep the most exciting stories for the end.

LEGAL PIRACY

The first
speaker was Christian Heinicke, Managing Director of Flatster.com, a
service that lets users order songs that are then fished out of
Internet radio streams and delivered for download to the subscriber.
Flatster costs 0,00 € for the top 20 single charts only, and
4,99 €
for the full service for one month or 7,99 € for one year.
Heinicke
argued that users are not paying for the music itself but for the
inter-mediation service and the editorial content (playlists etc.)
the company offers. He compared it to a TV programme magazine where
people pay for the navigational meta-information, not for the content
itself.

The main
critique was that Flatster pays no money to artists or new talent.
The representative from the music industry, Stefan Michalk, Managing
Director of the Bundesverband Musikindustrie e.V., predicted that
business models like those of Flatster, ISPs, Apple will lead to a
decrease in music diversity. He called them short-sighted because
they don‘t invest in new talent in order to make the resource
they
profit from sustainable. Marketing, he said, remains essential. DIY
is no alternative. There are 500,000 bands on MySpace but only a
handful (e.g. Arctic Monkeys) got famous.

Heinicke
was rather defensive about their business model and in the end came
around to offering talks about sharing their proceeds with musicians.
For lack of other models, artists need to be paid directly by
society, i.e. a flat-rate. No ISP was present in the discussion, so
Flatster had the role of the intermediaries. There was general
agreement on the panel that telecoms who sell broadband services
because there is free content on P2P (70% of Internet traffic) and
other intermediaries should be held accountable.

Alexander
Wolf, Director Industry at the German music collecting society GEMA,
mentioned talks between GEMA and the German telco Arcor that were
abandoned by Arcor without result. Following the French example, GEMA
wants to bring all players into dialogue. But often there is a
conflict, a battle over entitlements even within the same company
where one part wants to sell broadband and another downloads (e.g.
German Telekom and its download service Musikload.de). Also talks by
GEMA with US-companies like Apple and Napster that, like ISPs
indirectly profit from free downloads (selling iPods), are
exceedingly difficult. The deal concluded with MySpace (Murdoch)
resulted in only a six-figure sum per year for all uses in Germany.

Wolf said
that it is his personal conviction -- „the board of directors
of
GEMA will not be pleased to hear this“ -- that in the
long-term the
culture flat-rate is the only possible solution. But this is not the
philosophy of GEMA. The creatives among its members want to push GEMA
to give them tariffs to put music online (Urhebervertretungen
gegen Filesharing-Kulturflatrate, heise online, 13.11.2007).
The labels are opposed to
it.

Artur-Axel
Wandtke, professor for copyright law at Humboldt University Berlin,
criticised that the developed is defined solely by technology rather
than by politics. The only chance that individual authors have is
collective action by collecting societies. In the context of culture
it‘s nonsensical to talk about business models. It is
creativity
that needs to be supported. Everybody, he said, must be allowed to
download, and in return everybody is paying something like a
public-broadcast fee. He was very clear: a culture flat-rate is the
only possible solution.

In the end
the count on the panel was 3:1 (if the moderator Tim Renner, Motor
Entertainment GmbH, is included 4:1) pro flat-rate. Only Michalk from
the music industry insisted that the flat-rate is a capitulation. His
argument was that companies need to use blockbusters to cross-finance
new and small acts. What he did not say is that also with a flat-rate
titles that are downloaded more get a larger share from the pool of
fees. Therefore labels could do the same kind of cross-financing as
today -- if they were actually doing it all. When the question was
discussed what share an artist gets from exploitation of her work,
Michalk said that new acts get a smaller share because the label has
to invest in building it up, whereas famous acts can make much better
deals because they can threaten to go to a competitor.

DRM

2007 was a
turning point in the history of DRM. Now the world is going flat.

It started
when EMI announced at MIDEM 2007 that it would go DRM-free. The other
three majors followed throughout the year, with Sony-BMG as latecomer
in the first days of 2008. Software, text (e-books etc.) and music
are done. They have learned the lesson the hard way, i.e. that
cryptographic protection for mass market digital goods is useless and
stupid. Let‘s hope that the movie industry is not going to
take
another ten years before it learns the same lesson.

ARMT AND DANGEROUS: FILTERS AND DISCONNECTS

Now that
DRM is dead, industry is shifting gear to strategies no less
disastrous than DRM.

In time
for MIDEM 2008, IFPI released its annual Digital
Music Report. Its
headline reads: “2007 was the year ISP responsibility started
to
become an accepted principle. 2008 must be the year it becomes
reality”

The report
calls ISP co-operation, leading to systematic disconnection of
infringers and the use of filtering technologies, now that DRM is
gone (which the IFPI report didn‘t mention at all), the most
effective way copyright theft can be controlled.

It
specifically points to a Memorandum of Understanding that French
President Sarkozy had brokered in November 2007 between the music and
movie industries, ISPs and the state. In the ‚Olivennes
Agreement,'
intended to lead to legislation, ISPs agreed to filtering
fingerprinted works and disconnecting allegedly infringing users in
what has come to be known as a ‚three strikes
approach‘: first a
warning, then a temporary disconnect, and if the person continues her
alleged infringements she is disconnected for good. The subscribers
whose contracts have been terminated are to be included in a a
national directory, supposedly in order to prevent them from
contracting with any other ISP and possibly even accessing the
Internet in Internet cafes, at work or university. The state
established a new public office to which exploiters can address their
complaints. These guys are ARMT (Autorité de Regulation des
Mesures Techniques ) and dangerous. (EDRI-gram
on this; an English translation of the Agreement
for the development and protection of cultural works and programmes on
new networks by Enzo Mazza.)

Society is
shifting its information and communication infrastructure to the
Internet. Education, access to science, communal services, banking,
participation in political processes -- all of society, culture,
economy are increasingly going online-only. How can such a society in
democratic decision making possibly justify excluding potentially
millions of its members from the Internet?

In spite
of the blatant absurdity of this approach, the UK
has followed suit
with a draft law to the same effect.

The IFPI
report also calls for legislative action by the European Union
establishing filtering and disconnects. At that level at least the
question is still open and directed at all of us. Viviane Reding,
within the EU strategy for "Creative Content Online," had
started a
consultation that ended on 29. February, asking us
specifically what we think about the Memorandum of Understanding
adopted in France. In a separate question we are asked about Internet
filtering, while the 'three strikes approach' is not expressly
mentioned.

THE FLATRATE IN FRANCE

The end of
DRM in music and the shift to ISP liability makes the proposals for a
flat-rate compensation system for the Internet appear in new light.
Industry veterans like Jim Griffin and Peter Jenner for years have
called this the only possible solution. So have many law scholars,
consumer organisations and collecting societies.

The model
reached its most advanced stage in France. The Alliance Public
Artistes, a broad coalition of 15 organisations of musicians,
photographers, designers, Internet-users and consumers proposed
“licence globale.” It commissioned studies on its
legal,
technical and economic feasibility, and gained parliamentary support
from Socialists as well as Conservatives. And one night in December
2005, their amendment to the French copyright law implementing the
global license was actually passed into law. When the rights industry
found out, they raised hell at Midem 2006, and the decision was
reversed.

In October
2007, a number of Whitebooks on P2P were released in France. SNEP
(Syndicat national de l'édition phonographique, representing
the major labels) in its Whitebook
suggested the line of action that
emerged as the Olivennes Agreement mentioned above.

It is a
mixed lot. The software industry, unsurprisingly, rejects a legal
license. Ambroise Soreau from A.P.P. wrote that with it
„authors“
would lose the right to authorise or prohibit the use of their works.
He calls the flat-rate „expropriation.“ Collective
management was
a necessary evil in the analogue environment. New technologies make
possible complete individual rights management. Soreau actually
explicitly spells out that the issue is the organisation of
artificial scarcity. Copyright law by conferring a monopoly is one
way to do this. DRM is the other.

The
Association Musique-libre.org, again unsurprisingly, is opposed to
DRM. About the Legal license, they simply say, without any reasoning,
that it raises more problems than it solves.

Lionel
Thoumyre from the collecting society SPEDIDAM is still in favour of a
licence globale, giving a full overview of the model. The most
interesting in his article: in a survey they found that 75.5% of
Internet users in France are "ready" and "fully
prepared" to pay a monthly optional levy in exchange for
legalising peer-to-peer file sharing. Also 14.000 performers have
signed a petition to the same effect.

Alain
Bazot, Président of France‘ largest consumer
organisation
UFC-Que Choisir, in the same white paper, argues against the cynicism
of creating artificial scarcity in the name of artists. P2P is here
to stay. "When an infringing practice becomes widespread for a
generation, it's evident that the application of the law is
particularly unsuitable." UFC-Que Choisir therefore proposes to
implement a three-year transition period which allows both to secure
legal file sharing for non-commercial purposes and to provide a fair
compensation for artists.

In
the objective leading to Action 57 is defined as a reconciliation of
economic development and free legal downloading. The report argues
that introducing controls of individuals' Internet use like filtering
and monitoring would be a major impediment to growth and conflict
with constitutional rights of privacy and individual liberties. ISPs
are called the real beneficiaries
of
downloading.

Therefore,
says Action 57, ISPs should pay a contribution to the beneficiaries
in the various societies for the collective management of copyrights
in the form of a levy based on the overall volume of sharing of music
and video files. ISPs may pass the payment on to users who can
contribute on a voluntary basis. This contribution, says Action 57,
in addition to the income from live performances, CDs, DVDs,
subscriptions to download services and any other source of income to
come, ensures a fair compensation for artists without penalising
Internet development.

At Midem,
the French Minister for Culture and Communication, Christine
Albanel,
strongly rejected that idea, saying that it is not an issue
in her
ministry nor among industry and other associations. Instead she
present the new public office ARMT.

On 8.
January 2008, French President Sarkozy announced his plans to tax
ISPs, mobile phones and the ad revenues of private broadcasters ...
in order to remunerate creatives? No, in order to ban ads on public
TV. This is, of course, a bizarre attempt of making the new media
cross-subsidise the old, and tax payers‘ money funding
private
broadcasters whose stock prices immediately rose after the
announcement. But interesting in our context is that the idea is out
to put a levy on ISPs, even though, after Viviane Reding expressed
her opposition to Sarkozy's proposal. it seems less likely to go
through (Financial
Times 8.1.2008, International
Herald Tribune 8.1.2008 and International
Herald Tribune 21.1.2008).

IN SLOVENIA

There is
the consistent feeling that small countries will be the first to go
flat.

At a
conference last summer I was told that Slovenia made the new WIPO
Internet Treaty right of making available subject to mandatory
collective management. Unfortunately, I was not able to confirm this.

According
to unofficial information from the Slovenian Intellectual Property
Office this is not the case. However, the inquiry yielded interesting
information from the director of he National Library. If I understood
correctly, there is an initiative to introduce an exception similar
to the private copying exception but connected to the making
available right. At first this would allow library users to access
material only inside a library but the intention is to extend this to
remote access as well. Not quite the legalisation of P2P but an
important step toward introducing a balance into the exclusive online
right. [thanks to
Alexander, Vera and Maja]

FutureZone
reporter Patrick Dax called Bay and was told that the Danish
IFPI is
not proposing a flat-rate license at all, but is suggesting to ISPs
that they offer a streaming music subscription together with their
Internet access contracts. Subscription services like Napster and
RealNetworks‘ Rhapsody are not yet available in Denmark.

The music
industry put great hopes in subscription services but now considers
them failed. Users dislike the DRM scheme that creates compatibility
problems and lets all downloads expire the moment the subscription is
discontinued.

So it‘s
hard to imagine that Bay was actually proposing a failed model. Maybe
he was intentionally vague in his statement in order to test the
waters for a real flat-rate. As with all these rumours, where there
is smoke there must be fire...

CANADA

... is not
a small country, but a quite innovative one, and stubborn when it
comes to holding out against implementing copyright disimprovements.

In
mid-February 2008, the Songwriters’ Association of Canada
(SAC) and
Recording Artists advanced a „proposal
for the monetisation of file
sharing of music.“ At its core is a new right to be
written into
copyright law, the Right to Equitable Remuneration for Music File
Sharing. Distinct from the private copying exception, this new right
would authorise the sharing of music not only with family and friends
but with everyone as long as it is without motive of financial gain.
In return, creators and rights holders would be entitled to receive a
monthly license fee of $5 from each Internet and wireless account.
Usage is to be tracked by companies like Big Champagne so creators
can be paid according to the popularity of their works. „We
believe
that implementing a fair way of compensating Canada’s music
creators for the online sharing of their music will usher in a new
Golden Age of creativity.“

SAC has
put together a list of very compelling arguments that I‘m not
going
to repeat here. If you haven‘t done so, have a look.
They‘ve also
got endorsements
for their proposal from the Canadian Music Creators
Coalition (CMCC), the Nashville Songwriters Association International
and a number of individual artists.

This
proposal has triggered quite a debate (e.g. at TheStar.com
and at The
National Post), with many negative responses.
Some are based on misunderstandings but the most frequent one is
this: ‚I don‘t download music, why should I
pay?‘ The French
model solved this issue by making the licence globale optional.
Internet users would have the choice but if they don‘t get a
license and get caught downloading, copyrights will be enforced.

The
Canadian branch of IFPI, the Canadian Recording Industry Association
(CRIA), is naturally opposed. CRIA president Graham Henderson catered
to primitive fear of communism: "What you are basically saying
is, ‘OK, we are going to let the government run this.'"
Knowing fully well that collecting societies are not government
agencies but collective organisations of creators and, alas,
exploiters. He also called the SAC proposal a
„distraction“ from
the real issues (at The
National Post). He didn‘t mention what those are,
but one can
assume it‘s the overall IFPI strategy: implementing filtering
and
disconnects.

A much
more considerate if critical response came from Michael
Geist. His
first argument is that $5 extra for Internet access conflicts
with
the public policy goal of universal access and affordable broadband.
A tiered (Geist mentions this himself) and voluntary levy would solve
much of this issue. Then he rightly says that P2P
does not concern
music alone. Creators of other categories of works would also
demand
their piece of the pie, pointing to a proposal by the Canadian film
and TV sector to make ISPs contribute a share of their profits to
creating media content. This is indeed a flaw of the SAC proposal.
Other models like the French licence globale and the German content
flat-rate do include all work categories (except software which is
also excluded from the private copying exception). His doubts
notwithstanding, Geist welcomes the SAC proposal as a start of a
conversation. (See also a
poll that shows Canadians support ISP and WSP financial contributions
for Canadian digital media content production.)

In his
first post, Geist puts the question into a much wider perspective:
„While we all pay for services we don't use (my tax dollars
support
museums in other cities that I don't visit or schools that my kids
don't attend), there are times when such systems are necessary for
broader policy reasons. In this instance, I don't think we are there
yet.“

Leaving
aside that schools are not a „service“ but a
constitutional right
and obligation for every citizen, and leaving aside that a levy is
not a tax, this does raises what to my mind is the true issue and in
which the copyright flat-rate is only one element: i.e. how do we,
all citizens, collectively relate to our common culture? Media are
not only culture industry (Adorno/Horkheimer) but also public sphere
(Habermas/Derrida). Therefore they need to be approached differently
than by standard industry policies. The market has its role, but
leaving culture -- its creation, dissemination, preservation,
re-evaluation and reuse -- to the market will lead to its
impoverishment for all. The I-only-pay-for-what-I-consume attitude
leads to the end of culture as we, at least in much of Europe, know
it.

What we
need is a debate not on what the music industry might be losing but
what we all have to loose and what we have to gain: open access to
knowledge, a rich public sphere and a versatile and sustainable
culture. Starting the debate from there, infusing it with a bit of
the old-fashioned idea of solidarity (those of us who can, pay a bit
extra to bridge the digital divide for those who can‘t;
creators
set aside 10% of their common levy proceeds to foster newcomers and
support those in their community in need), I‘m convinced,
will put
the issue of taxes, public broadcast fees, levies in a different
light. The fact that 75% of French Internet users are willing to pay
a monthly optional levy is a clear indication.

ITALY

„Un
casino“ was one of the words I came to love when I learned
Italian.
I had to think of it when I read the slashdot
headline „Italian
Parliament To Mistakenly Legalize MP3 P2P.“ Everybody else
has a
hard time in doing the obvious and the Italians just go ahead and do
it -- by mistake!

So what is
all this about? The amendments to the Italian copyright law that were
approved by Chamber and Senate in January 2008 include a paragraph
that reads: "It is permitted to freely publish through the
Internet, free of charge, images and music at low resolution or of
degraded quality, for scientific or educational use, and only when
such use is not for profit." La
Repubblica cites Andrea Monti, a
lawyer and copyright and Internet expert and member of a working
group on copyright at the Ministry of Culture. Monti said that
whoever wrote this did not realise that the word
‚degraded‘ has a
precise technical meaning, which includes lossy compression formats
like MP3.

The
reaction of the President of the Italian IFPI, Enzo Mazza, was
unconcerned. He expects the decree by the Ministry of Culture on how
to interpret the new provision to set the scientific or educational
use condition very restrictively. E.g. a personal website of a
professor would be excluded. Monti replied: "It is impossible to
restrict it in this manner because the Italian constitution allows
all citizens to disseminate educational and scientific
information.“

Andrea
Glorioso, when I asked for his opinion, was more cautious. The
meaning of „degraded quality“ will be left to
courts to evaluate.
„I think Monti might have gone a bit too far by assuming that
any
publication on the Internet would satisfy the other requirements of
the new article, i.e. it being for teaching/educational/research
(TER) purposes and without any commercial gain. The point is that it
might not be so easy for people to demonstrate the TER purposes (the
non-commercial gain is, in my opinion, easier) for publications
‚in
the wild,‘ i.e. exchanges over an ‚open‘
P2P network. Still,
this is an important development, and one that was not expected by
those who pushed for this article, i.e. the Italian branch of
IFPI.“
He added that the article does not introduce a new levy for the this
online exception in addition to the existing levy on blank
media. [thanks to
Andrea]

We‘ll
have to wait for the ministerial decree, but it looks like P2P
file-sharing at least between schools, universities and research
institutions might become legal in Italy. What a test bed for the
content flat-rate model -- and even better: without a flat-rate!

GERMANY

The new
German copyright law came into force on 1 January 2008. It does not,
of course, contain a flat-rate, but an interesting provision: Works
marketed under DRM are explicitly excluded from collective
compensation (§ 54h.2). This is the first half of the
„Dual
System“ proposed by Alexander Peukert and others like Till
Kreutzer: Exploiters must choose whether they want to use DRM which
makes private copying impossible and therefore excludes these works
from compensation through the collecting societies. Or they
don‘t
use DRM in which case they do receive their share from the levy for
recording devices and recordable media. This raises the question
whether these will be sufficient to bear the load, considering that
the model of recorder + cassette, burner + CD is rapidly being
replaced by downloads onto hard-disks. How far can levies on HDDs be
raised? When does it become inevitable to include Internet access?

In the
meantime, more public people in Germany have joined the flat-rate
proposal.

Peter
James, Chairman of the German indie label association VUT at a
conference in December, organised by the unions‘ association
DGB,
finally came out in favour of a flat-rate -- at least as a basic form
of remuneration, as he explained to me. On a panel at c/o pop in
Cologne in August 2007 he was still very much opposed to a flat-rate.
In March 2007, the VUT, or more precisely its legal committee had
issued a statement, in which they demanded an expansion of the
existing system of blanket licenses to include ISPs. In return, they
half-heartedly proposed to include downloads in the private copying
exception but keep uploads illegal (Stellungnahme
VUT zum 2. Korb, 15.3.07).

Tim
Renner, former head of Universal Europe, discoverer of Rammstein, now
running the label and radio station Motor.FM, in an
interview on
22.01.2008 said that a global music flat-rate is the model most
suitable to the Internet, its spirit and dynamics of free sharing,
and that he would welcome it. He also pointed to an allegedly
existing pilot project in Iceland.

ICELAND

Again more
smoke, no fire. What I did find was an international conference on
the future of music distribution and Internet marketing entitled “Who
is in Control?” held in October 2007 by the
Icelandic Music Export
(IMX). Self-appointed 'Media futurist' and well-known flat-rate
promoter Gerd
Leonhard was one of the keynote speakers. A press
release announced: „The ‘Who is in
Control?’ international
conference will present a ground-breaking new business model which
Iceland could be a test bed for.“

That
sounds very promising, indeed. But again my inquiry led to nothing
more than the general idea that the small and isolated territory of
Iceland might be suitable as a test bed for a flat-rate. What I did
come up with is no less exciting, if entirely unrelated to Iceland.
The link leads to the UK.

UK

In the
land of no private copying levies a remarkable development came onto
my radar, if only just barely. The mysterious „Value
Recognition
Strategy Group“ (VRSG) is so secretive that Google has only
three
hits on it, two are to the same BMR
press-release on the resignation
of Emma Pike.

Emma Pike
is the former Chief Executive of British Music Rights (BMR), and
since June 2007 Vice President, Communications & Artist
Relations
at Sony BMG. The press-release says that as co-chair of the VRSG she
has been a leading voice calling for open debate across the industry
on copyright and licensing in the digital age.

„AIM, in
conjunction with British Music Rights, leads a group which was
created following the Summer 2006 industry round table discussion on
Copyright in the Digital Age hosted by the Smith Institute and AIM.
This group comprises lawyers, technologists, economists and business
owners from across the UK music industry. By bringing together this
unique set of skills and disciplines, we are focussed on the
challenge of examining how new economic models can be created, based
on new usage models. We are determined that the value of music must
be acknowledged, and paid for in some way appropriate to those new
usage models. The group is called the Value Recognition Strategy
Group, and they are producing some very exciting work which will be
presented to the industry during the summer of 2007.“

And then
there was this conference in Iceland. On which there is also no
publicly visible reporting at all. Upon request, the organisers
pointed me to a report in the subscriber-only newsletter of
Music.ally,
a UK music business research consultancy (Music.ally
Report, Issue 178 - 18 October 2007). Another request
and the report was on my screen. And it is quite surprising indeed.[Thanks
Anna, thanks Paul.]

The UK‘s
VRSG according to this report had had the task to investigate new
forms of licensing of currently unremunerated forms of usage like
copying and sharing. Models to be looked at included licensing ISPs
and device manufacturers. Just in time for the Reykjavik conference
it had completed its report. The group, writes music.ally, reports to
a principals group which includes senior UK label executives. Some of
whom chose remote Iceland for leaking some of the key findings.
„Although unable to share too many details of the report
publicly,
Sony BMG's Fred Bolza and AIM's Alison Wenham presented some
conclusions and key insights at the event in Reykjavik and Music Ally
understands that the report has produced some interesting and
arguably unexpected results.“

What
follows is not that unexpected at all. In analysing the decline in
value of the UK recorded music business from its historic peak in
2004 (i.e. five years after the birth of P2P!) the group found that
the proportion of the value gap caused by other factors, such as the
drop in prices and format changes and device to device sharing, is
greater than that caused by file sharing and is growing at a faster
rate. That there is no negative effect by file-sharing on sales has
been shown consistently by independent empirical academic research
starting from Oberholzer-Gee
and Strumpf‘s paper in 2004 (here is the actual
paper) to
Bhattacharjee
et al.‘s study on the dynamics of music album
life-cycle in 2007.

The most
exciting result to me was that the group, working with a mathematical
model to estimate the economic impact of blanket licensing,
„calculated that the monthly rate required to close the value
gap
from a flat rate fee on either ISPs or manufacturers would be
extremely low.“ One would have to look at the actual model
applied
in order to evaluate in how far this goes beyond existing studies,
but the fact that an apparent high-level group directly advising
industry executives says that an extremely low levy would fix the
problem is indeed remarkable.

This
excitement was immediately followed by disappointment, as in the end
the VRSG report as reported by music.ally called the model, although
clearly desirable, not feasible: „The report concluded that
any
attempt to implement such a flat rate which would cover all ISP users
and/or all devices would not be feasible in the commercial world
owing to the structural and legislative changes that would be
required to enable it.“

Again one
would wish to know more about the underlying reasoning. Devices have
been levied in Germany and many other countries for more than forty
years, making it hard to understand what is unfeasible about it.
Extending the model of legal permission plus levy to the Internet is
controversial, but since the study commissioned by the Alliance
Public Artistes to France‘s most renowned copyright scholar
André
Lucas there is solid proof of its juridical feasibility (French
original and English
translation). I have no
idea what the „structural changes“ part could refer
to: a change
from file-sharing without remuneration to file-sharing with
remuneration?

The final
glimpse of the VRSG report that the Music.ally article gives is this:
„What the report does highlight is the need to move away from
licensing models which are based on units and actual usage to one
based on monetising the user -- similar to the ARPU (Average Revenue
Per User) and CLV (Customer Lifetime Value) approaches favoured by
mobile operators and ISPs. Due to the unlikelihood of delivering a
pure user based model, it points the way towards more 'hybrid' models
that blend a flat user fee with usage where practical. This may take
the form of a large number of tracks offered for a monthly fee by an
ISP or bundling a fee on devices which would then allow the user
unlimited consumption of music -- the latter being a model which
Universal is reportedly exploring with its Total Music
initiative.“

More on
Total Music below. The Music.ally article ends with a link back to
Iceland, calling it idealy suited as a potential test market for a
flat-rate model because it is a fairly isolated territory with few
relevant players who could forge a consensus more easily than
elsewhere.

SWEDEN

Powerful
signals are also coming from the land of the Pirate Bay and the
Pirate Party. In following up on flat-rate news from Iceland I was
told about a flat-rate experiment that was to be set up in Sweden. I
was pointed to Daniel Johansson from Musiclink.se to
ask about it.
Musiclink‘s website does not give much but quite interesting
information:

„Musiclink
is developing a new tool, MIMS – Music Intelligence Mashup
Services, that will gather statistics and information from hundreds
of online services and then analyse and present the data in easily
accessible formats. The service is based on Web 2.0 technologies,
making use of mashups and dynamically collecting data through APÍs
and webscraping. A prototype of the service will be available during
the second half of 2008.

„Musiclink
is a new media company owned by the largest music festival in Sweden,
the Hultsfred Festival. ... The MIMS project is a part of the
Musiclink project where new technologies are used for creating new
business intelligence tools for music companies.“

Johansson
confirmed that the technology they are developing could be used not
only for scraping the web but also P2P services. This could be
another building block for rewarding creatives according to the
number of downloads of their works. [thanks to
Anna, Paul and Daniel]

The
information about a flat-rate experiment, as Johansson confirmed, is
related to an announcement
by the Swedish Performing Rights Society
(STIM) in mid-February 2008: „How downloading could
be made legal“.
In a statement also signed by FST (Swedish Composers Society), SKAP
(Swedish Society of Popular Music Composers) and SMFF (Swedish Music
Publishers Association) these artist and industry groups are calling
for a new paradigm:

„Downloading
music from the net could become legal if users paid for it through
their ISP. ... We want to sit down and talk with ISPs about what we
and they can do to offer users a way of paying through their Internet
charges for the music streaming through the providers’
networks --
a way of making their music surfing legal.

„Typically
it will mean increasing the ordinary Internet user’s monthly
charge
by an amount related to the overall use of music on the net. In
return, they will be free to legally download music from the net for
their own use. What will make this possible is for providers to sign
licensing agreements with STIM and other rights societies -- just as
radio stations, supermarket chains and sports facilities do today.
...

„To
begin with, perhaps, one or two providers will have to take the lead
with an ‚ethical‘ broadband offering. An obvious
target group is
parents worried about their Internet connection being used by teenage
offspring for illegal file sharing. But in time we hope that
‘legal
free Internet’ will become the new norm, offered as standard
by
ISPs to private customers.“

On the
STIM proposal see also the blog posts by Karl Sigfrid, Member of the
Swedish Parliament for the Moderate Party (here
and here).
He favours decriminalising
file-sharing, is rather critical of the flat-rate but says „a
modest fee would be more palatable to ISPs and users than tougher
enforcement of intellectual property rights, but STIM’s plan
won’t
work until the international copyright regime is changed.“

B2B FLATRATE

Industry
has been calling blanket licenses and the flat-rate a „loss
of
control of authors over their works“,
„expropriation“ and
„communism.“ Now it turns out this was all
propaganda. They are
not opposed to a flat-rate at all -- as long as they are managing it.

The
motivation is, of course, not to do away with oppressive copyright
enforcement, foster information freedom and legalise P2P. The
initiative is coming from Universal Music Group (Vivendi), and their
motivation is to fight iTunes that UMG has been at odds with since
early 2007. Vivendi CEO Jean-Bernard Levy had called the 29 cents
that Apple takes of the 99 cents "indecent."

The first
we‘ve-heard-it-from-insiders rumours on a new UMG licensing
service
called Total Music were reported by digital
music news on 10
September 2007. The article talks about a music subscription but
different from that of Napster and Rhapsody. It would require buy-in
from ISPs and mobile access providers and force opt-in by ISP and
mobile subscribers requiring them to pay a monthly fee.

In
reporting on this, Wired
blog added another forced opt-in, that of
artists and labels because „otherwise rights holders and ISPs
would
need to negotiate a near infinite number of deals in order to offer
the 100% catalogue coverage consumers would demand for their monthly
fee.“

On 22
October 2007, Business
Week followed with some more details on Total
Music in a piece entitled „Universal Music Takes on
iTunes.“ It
talked about an industry-owned subscription service for which UMG had
already got Sony BMG to sign on and was talking to Warner about. It
mentioned that existing subscription services aren‘t very
popular
but said that in the case of Total Music the majors wouldn‘t
license music to end-users but to device makers, ISPs and mobile
carriers. Those would pay them roughly US$ 5 per month and customer
for which they could offer their customers free all-you-can-eat music
downloads. It named Microsoft's Zune and Sony's PlayStation as
possible devices with which the „free“ music might
be bundled.
The article ends with some back-of-the-envelope calculations that the
service would increase the cost per player by about US$ 90, assuming
that people on average get a new music player or phone every 18
months.

In
November 2007, Wired
Magazine had a big story on Universal‘s CEO
Doug Morris. It gave the Total Music strategy a good chance against
Apple. „After all, why buy an iPod if a Zune will give you
songs
for free?“ It is less optimistic about the DRM that the
service
will almost certainly require. „The irony is that if he
decides to
base his plans around DRM, Morris will be missing the larger truth
that has propelled his business for the past 30 years. Ultimately,
it's convenience and ease of use that drive new media
formats.“

US-industry
expert Bob
Lefsetz commented on the Business Week article:
„Doug
Morris is not stupid, but he’s an old wave player failing
miserably
in a new world. ... The way out is to license your music to
everybody, let the techies develop the new model, in concert with the
public. ... Unlock the music. As Jim Griffin always says, license
the anarchy. Rather than telling every restaurant and coffee shop to
stop playing music, or getting them to write down each and every song
they play, get a fee, then divvy it up amongst rights holders.
It’s
kind of like YouTube. Instead of trying to get people NOT to use
copyrighted music in their videos, find out a way to get PAID FOR
THIS USE! Instead of suing people to stop trading, instead of trying
to convince them to rent instead of buy, license/charge them for
their present use, and follow the evolution of technology. Instead
of saying no, say yes. Doug and Universal’s days as a
monopoly are
done. If their shareholders had a say, if their boards truly
understood the business, they’d say to STOP LEAVING MONEY ON
THE
TABLE! Make deals with everybody. Acknowledge what’s really
going
on. STOP trying to convince people to do what you want them
to.“

On 4
December news about the first licensing deal of Total Music emerged,
and it wasn‘t a subscription like Napster and Rhapsody any
more but
people were to keep their downloads for good. Nokia announced its
„Comes with Music“ offering that, starting in the
second half of
2008, would allow buyers of certain of its mobile phones unlimited
free downloads from UMG's entire catalogue for 12 months, after which
users can keep all of their music. Downloads would be from
Nokia‘s
Ovi mobile Internet services onto the phone or a PC. Ars
Technica
reported that they would be protected by Microsoft's PlaysForSure
DRM, a system even Microsoft itself has chosen not to support on its
own Zune. „Burning a CD of any track(s) will require an
upgrade
purchase for each track.“ The article has an update that says
that
Nokia clarified that while it is working with Universal for this
program, „Comes With Music“ actually does not have
anything to do
with Total Music.

The latest
news on Total Music I found was from the US Department of Justice. On
7 February 2008, Ars
Technica reported that Universal and Sony BMG
have been targeted in an antitrust investigation. The DoJ will look
into whether the Total Music initiative might give the majors a way
to shut out uncooperative vendors from the unique initiative.

FutureZone,
in reporting on Total Music, added a pointer to a similar
deal that
UMG had recently made with the ISP
Neuf Cegetel in France. Customers
who subscribe to a package of DSL, telephone and cable-TV for about
30 Euros per month get access to a selection of songs from
UMG‘s
catalogue. For an additional 5 Euros per month they get unlimited
downloads from a selection of 150,000 tracks and 3,000 music videos.

Looking
at their website in early March 2008, it boasts 25,000,000 songs ...
coming soon. For now the visitor is invited to download the Qtrax
media player and import and play songs from her existing music
library. The Qtrax player contains a Gnutella
client and is integrated into a Mozilla browser. It wraps its P2P
downloads in Windows Media DRM -- Qtrax' Executive Vice President is
a DRM expert -- and ads advertising to them.

The
FAQ explains: „Eventually, Qtrax will have approximately 25
million
songs available for downloading. Qtrax accesses the universe of P2P
directly, which has an ever-expanding galaxy of files. If it's
available on P2P, you can get it on Qtrax. ... Every file that you
download runs through a filter, which removes undesired adware,
spyware, and/or spoof files. ... The downloaded music can be found in
your library. You can then play these files anytime you want in the
Qtrax player.“ It says that it also plays Fairplay protected
songs
from iTunes. „As long as you are on the computer where you
downloaded the tracks, you'll be able to play them using the Qtrax
player.“ You can also get them out of your PC but just
barely. The Microsoft DRM allows transfers to Windows
Mobile devices. And
„you're always free to share these files with other users via
Qtrax.“ The company reported that 500,000
people downloaded the Qtrax player after the failed launch at Midem.

Qtrax
also caters to creatives. „Qtrax was created to allow
musicians to
monetize their music over P2P. ... Qtrax respects your
rights
as an artist. We will not intentionally distribute any artist's
works without a license. Please remember that P2P is an open network
with millions of users, which Qtrax uses as a source for the
catalogue. If you do not want your music available to Qtrax users or
if you find your music on Qtrax and want it removed, please email:
artists@qtrax.com.“

The
website states that „Qtrax has the unparalleled support of
the
major record labels.“ Again, one can safely assume that where
there
is smoke there is also fire. But it is also evident that the start-up
lacks business expertise when it went public without actually having
signed licensing contracts and turned the hyped launch
event
at Midem into a fiasco.

Ars
Technica reported on a presentation by the company's CEO,
Allan
Klepfisz, at Digital Forum East in New York on 27 February 2008. He
repeatedly said „that he was buoyed by the amount of
behind-the-scenes support he received from the labels“
implying
that contract signing is imminent. The article also says that users
have to consent to having their playback data tracked and
uploaded to Qtrax and that they need to be online to continually
refresh the DRM licenses. Finally the article pointed to competition
from MySpace that is rumoured to be preparing a similar ad-supported
download/streaming service, and by Google.

The
claim of major label support for Qtrax was backed by GEMA's Alexander
Wolf at the Berlin event I started this review with. Wolf said that
this time around the labels early on bought shares of the start-up
company so that when it gets bought up by one of the big shots, like
YouTube that was bought by Google for 1.6 billion US$, they are sure
to participate.

Whether
Total Music or Qtrax, MySpace or Google, these are forms of the
flat-rate done by corporations among themselves. With two significant
differences compared to the original flat-rate model: The
„end-users“
who will have to foot the bill in the end are not being asked. When
you buy one of the Nokia phones you will have to pay for music even
if you don't download any. When you buy a product advertised on Qtrax
you will have to pay the music fee folded into the products'
advertising budget even if you're not using Qtrax at all. And a deal
between two corporations is obviously going to be less transparent,
less accountable, less fair to authors and musicians than a flat-rate
administered by a collecting society under member control and public
oversight. Both creators and listeners are sure to be
losing
out.

ECJ AND GERMAN SUPREME COURT

Privacy
invasion is one of the major arguments against DRM and for a
flat-rate. Two recent court decisions, for a change, strengthened
privacy protection.

The
European
Court of Justice on 29 January 2008, ruled that governments
can, but are not required to, order ISPs to disclose personal data
about subscribers suspected of online copyright infringement. One
would have hoped for a stronger ruling as suggested by ECJ Advocate
General Juliane Kokott who had argued that European law allows
disclosure only in the course of criminal proceedings. However, the
ECJ made it clear that if European
member states do make laws that require disclosure in civil cases
they have to do so in a manner that does not conflict with the
fundamental right to privacy or with the principle of
proportionality (IP
Watch report).

This was
followed by a ground-breaking decision by the German Federal
Constitutional Court on 27 February 2007 that introduced a
new fundamental right of guarantee of confidentiality and integrity
of information systems. The court had to decide the constitutionality
of online searches. Germany's Interior Minister Wolfgang Schaeuble
has been eager to enable law enforcement to hack into suspects'
computers and install Trojan horses in order to obtain data. The
court ruled that the new fundamental rights of confidentiality of
data and integrity of IT systems may only be violated in severe cases
of imminent danger to human life or the state as such (Netzpolitik
report).

The
Federal Commissioner for Data Protection and Freedom of Information,
Peter Schaar, welcomed the judgement as a milestone and urged that in
its light a re-evaluation of the new data retention law is necessary.
“The data retention legislation has been
challenged by
34,000 German citizens in the largest constitutional complaint ever
filed in Germany. Privacy advocates in Germany fighting back against
the flurry of new legislation in the fight against terror hope for
another landmark ruling in the coming months,” reports IP
Watch.

To
sum up, I would say the time is ripe for an Internet copyright
flat-rate. After the end of DRM, copyright hard-liners, the IFPI in
particular, are fighting a rear-guard battle they are sure to lose.
Proposals for Internet filtering have been going around for a while
but are considered unacceptable in democratic countries. The new idea
to prohibit citizens using the Internet altogether is too ludicrous
to even consider. On the other hand, ever more and more powerful
voices not only by individuals but by authors' and musicians'
organisations and collecting societies are calling for a flat-rate.
There is some confusion as to the details of its design but I see no
argument in principal against it. The answers are there. They only
have to be communicated in a solid and convincing way.

Am I too
optimistic? Did I get anything
wrong or miss
important developments to the contrary or in support? What
can
we do to contribute to the public debate? Please
let me know.